Construction, manufacturing continue to improve

Two key sectors inch forward after a 2011 slump, but face challenges in 2012

Two key areas of the U.S. economy - construction and manufacturing - started 2012 on a positive note, after recovering from a sharp slump last summer.

Despite the improvements, however, both industries face an uphill battle to recover from historic lows. San Diego County is performing better than the national trend in some areas and worse in others - particularly employment.

Manufacturing offers the brightest signs of economic growth, according to a monthly index by the Institute of Supply Management.

Although manufacturing dipped sharply in the middle of the year, when squabbling on Capitol Hill and troubles in Europe raised the specter of a double-dip recession.

But output began picking up in November and the January figures, which were released today, are the best since last springtime.

"Manufacturers reported the largest increase in new orders since last April," said Chris Williamson, chief economist at Markit. "The faster growth of orders reflected improved demand from home markets as well as abroad. Encouragingly, backlogs of work rose for the first time in eight months, suggesting that the current rate of growth of new orders is stretching manufacturing capacity, leading firms to hire additional staff."

Williamson says that the new orders indicate that February's numbers will be better than January's.

Like manufacturing, construction has been recovering from a midyear slump. But with real estate prices still on the decline, the outlook isn't as positive as for manufacturing.

Construction spending rose 1.5 percent in December after a 0.9 percent rise in November, or 4.8 percent ahead of December 2010, according to a report by the U.S. Census Bureau today.

Even with that late year uptick, however, the yearly total for construction spending in 2011 was 2 percent below 2010.

"The construction numbers for 2011 were dismal," said Patrick Newport, U.S. economist for IHS Global Insight. "Total spending was at its lowest level since 1999 and after adjusting for inflation, the numbers look much worse."

Newport added that the numbers improved as the year went on and the improvements will likely extend on this year. But partly because of government cutbacks on public works projects, he does not expect 2012 to be much better than 2011 for construction.

Here's how the various categories broke down in December.

Single-family homes.

Compared to November 2011: Up 1.5 percent

Compared to December 2010: Up 3.8 percent.

Yearly total: Down 5.1 percent. San Diego seems to have come out better than the national average, with single-family housing remaining basically flat. In 2011, the county issued one less permit for a new single-family home than in 2010.

Apartments, condos and duplexes.

Compared to November 2011: Down 0.3 percent, but that came after a huge 6.1 percent jump in November.

Compared to December 2010: Up 18.8 percent.

Yearly total: Up 0.3 percent. Multifamily housing had an even healthier rise in San Diego County, but because of the lack of growth in single family homes, it remained the third worst year on record, after 2009 and 2010.

Nonresidential construction.

Compared to November 2011: Up 1.9 percent, driven mainly spending on communications construction (e.g., laying new phone lines or constructing cell towers) and manufacturing plants for computers and electronics.

Compared to December 2010: Up 4.5 percent.

Yearly total: Down 1.7 percent. The mid-year slump wiped out the gains of the early part of the year, and most sectors have not bounced back. In the second half of the year, most growth came from power and transportation projects, schools and electronics-related factories.

Government-funded construction.

Compared to November 2011: Up 0.5 percent, mainly for road, power, sewage and water projects.

Compared to December 2010: Down 2.5 percent.

Yearly total: Down 6.5 percent. Further cutbacks are expected this year.